Replies to This Discussion

Permalink Reply by Lerret on September 11, 2014 at 3:49

If unitized I believe any well in the unit will hold the lease. And in many areas, "operations" include such tripe as setting a cattle guard in the fence or dozing a few swipes with a dozer. I've seen court cases where owners objected when wells were not drilled for months.

You should have language in the lease to the effect that the pad must be constructed and a surface conductor placed by the end of the term and that they have 90 days to place a rig on site, capable of drilling to total depth and actively employed in that drilling operation. And that is a "drop dead" date regardless weather, force majeure, etc. They have 3 to 10 years to do it. So just do it or get out of the way.

I knew a large landowner in Colorado that had a gate lease.  You want to drill, here were the terms, pay at the gate when the rig gets here. First come, first serve.

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Permalink Reply by Kevin Raybourn on September 11, 2014 at 13:46

I think with the activity going on here lately that there won t be a long wait for drilling.....I was just curious if a well had to be drilled or not.....I know it s in the lease ...I ll have to refresh my memory again.....They went in down the road at the W Alford site and constructed a well site 1,2, 3.......I didn t figure they would do that and wait too long......Everyone around here is happy to see this happening and making as easy as they can to welcome drilling.I might even set up the BBQ pit and cook for them when they come..........

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Permalink Reply by Skip Peel - Mineral Consultant on September 11, 2014 at 13:52

Well pads are quite often built well in advance of plans to drill.  And drilling schedules are fluid and change regularly sometimes leaving a pad undrilled for a long time.  We've already seen numerous examples of this in the TMS Play.  The direct drilling costs are approximately half the total well cost.  By having multiple pads built in advance a rig always has somewhere to go.  The operator is obligated to pay the daily rate whether the rig is drilling or it is not.

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Permalink Reply by Kevin Raybourn on September 11, 2014 at 14:06

There are 2 Rigs in our area now ......These are Goodrich wells ......Do these rigs work for Goodrich as long as they have a place to go.....Or are there other operators waiting to  hire these rigs....How does this work ???

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Permalink Reply by Skip Peel - Mineral Consultant on September 11, 2014 at 14:40

Operators contract with a drilling contractor for a set number of wells or for a set period of time.  With few exceptions the same rigs have been drilling for the same TMS operator for many months.  The play area is such that it is relatively easy to limit non-drill time.  It's not far from one surface location to the next. 

Currently the rigs drilling in the play are:  CRK - 1, ECA - 2, GDP - 3, HK - 2 and SN - 1.  Several operators have indicated they would like to move in additional rigs but that has not happened yet.

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Permalink Reply by Skip Peel - Mineral Consultant on September 11, 2014 at 15:33

Below $90?

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Permalink Reply by Skip Peel - Mineral Consultant on September 11, 2014 at 16:02

Geopolitical crises abound, but oil producers are still pumping -- and pumping more than the world needs.

• BY Keith Johnson   ·  SEPTEMBER 11, 2014   foreignpolicy.com

Excerpt:

The result: a glut of oil that has driven down benchmark crude prices to levels last seen at the beginning of 2013. Brent crude in London traded at about $97 a barrel Thursday, Sept. 11, while West Texas Intermediate, traded in New York, threatened to dip into the high $80s per barrel.

Link to full article:

http://www.foreignpolicy.com/articles/2014/09/11/exploding_world_ch...

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Permalink Reply by Skip Peel - Mineral Consultant on September 11, 2014 at 16:06

IEA Cuts 2015 Oil Demand Forecasts

Economic Weakness in Europe and China Lead to Slowdown

wsj.com  By Sarah Kent Updated Sept. 11, 2014 8:18 a.m. ET

The International Energy Agency Thursday trimmed its forecast for the rise in oil demand this year for the third month in a row, calling the recent slowdown in demand "nothing short of remarkable."

Link to full article:  http://online.wsj.com/articles/iea-cuts-2015-oil-demand-forecasts-1...

Permalink Reply by Andrew on September 12, 2014 at 20:33

A glut in Louisiana Light Sweet is an independent and real threat. The gulf coast refineries can only process so much of it right now, and if crude exports remain prohibited the TMS could cause a real bottleneck in the gulf market.

Permalink Reply by tc on September 12, 2014 at 1:53

That is a worse case scenario, for Goodrich in the LA TMS they only pay 20% royalty and no severance tax until well payout or 2 years which ever comes first.  So at the beginning when GDP is trying to recover the cost of the well, they are getting $68 on $85 oil.  Plus LA oil is priced closer to Brent prices, which has been around $10 more than WTI.

Per this article it looks like LA is reviewing its severance tax, the locals would know if these changes have any support or hope of passage.

http://www.drilldeeperblog.com/2014/04/louisiana-severance-tax-ince...

Permalink Reply by Jesse Joyner on September 12, 2014 at 5:38

If you lived in Louisiana and didn't own any land, tc, how would you vote? If you didn't work in O&G, how would you vote? Before you answer, you might research where Louisiana's severance tax money is funneled and what it presently pays the bills on. You also might ask if people want to pay a higher personal income tax to support the colleges and universities if the severance tax would be cut back. And it is a good polling series of questions.  

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Permalink Reply by tc on September 12, 2014 at 6:40

First, I am a cynic so I don't for a moment believe that my vote would have very much influence compared to lobbyist $$$.  Severance Tax is a big issue in PA elections.  The current governor in his 1st year of office passed a zero severance tax bill in PA and then cut education funding for the next 3 years, he is now losing by 24 points as his challenger has hammered him with ads like this: 

Wolf’s voice continues in the background. “Corbett cut a billion dollars from education,” he says. “Now, almost 80 percent of school districts plan to raise property taxes. Meanwhile we’re the only state that doesn’t charge oil and gas companies an extraction tax. And Corbett raised your gas taxes through the roof.”

The issue is not so black & white, but it does make for a great 30 second commercial. 

The tricky think about severance taxes (& most other taxes) is that you don't want them so high that they cut off grow, but not so low that the state loses a finite resource, with out any income. 

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